GM’s Pension and European Problems

I sold my GM position recently. The stock is up about 20% since where I bought it in late 2011.

Here are my reasons:

Pensions: GM is attempting to ‘de-risk’ the pension plan by boosting its bond holdings. I understand matching assets to liabilities but if there is a bubble in government bonds this could cause plan assets to plummet. Theoretically discount rates would benefit but you have to have some serious faith in GM’s investment team given the massive numbers involved. Also, any miscalculation of benefits would be material given the $133b in planned benefit obligations.

Lack of Action in Europe:I don’t get the GM-Peugeot alliance. Maybe it’s partially meant as a tool in union negotiations but from my view this isn’t going to move the needle for either company, especially GM. Capacity needs to be taken out and wages lowered, similar to GM’s bankruptcy in the US but I don’t see this happening anytime soon.

Inferior Products: Their product line is still heavily dependent on gas guzzlers and rarely rank as high as other automakers in quality reports.

Insiders Selling: There were 5 insider sales by officers disclosed this week, all were for 6 figures. This never instills confidence in me, regardless of reasons given by investor relations.

Poor Industry: I knew this one in advance and felt I was more than compensated by the 6x earnings level. But let’s face it, its a tough industry.

I still think GM is likely undervalued but the size of the company’s pension plan, my lack of faith in management, dislike for the economics of the auto industry and the higher stock price have caused me to move on.